POSIIBLE QUESTIONS FOR TEST 1 1) Foreign stock markets are frequently characterized by controlling shareholders for the individual

publicly traded firms. Which of the following is NOT identified by the authors as typical controlling shareholders? A) The government (for example, privatized utilities). B) Institutions (such as banks in Germany). C) Family (such as in France). D) All of the above were identified by the authors as controlling shareholders. Answer: D 2) "Maximize corporate wealth" A) is the primary objective of the non-Anglo-American model of management. B) as a management objective treats shareholders on a par with other corporate stakeholders such as creditors, labor, and local community. C) has a broader definition than just financial wealth. D) all of the above Answer: D 3) The Shareholder Wealth Maximization Model A) combines the interests and inputs of shareholders, creditors, management, employees, and society. B) is being usurped by the Stakeholder Capitalism Model as those types of MNEs dominate their global industry segments. C) clearly places shareholders as the primary stakeholder. D) is the dominant form of corporate management in the European-Japanese governance system. Answer: C 4) The Stakeholder Capitalism Model A) clearly places shareholders as the primary stakeholder. B) combines the interests and inputs of shareholders, creditors, management, employees, and society. C) has financial profit as its goal and is often termed impatient capital. D) is the Anglo-American model of corporate governance. Answer: B 5) In the Anglo-American model of corporate governance, the primary goal of management is to A) maximize the wealth of all stakeholders. B) maximize shareholder wealth. C) minimize costs. D) minimize risk. Answer: B

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6) In finance, an efficient market is one in which A) prices are assumed to be correct. B) prices adjust quickly and accurately to new information. C) prices are the best allocators of capital in the macro economy. D) all of the above Answer: D 7) Systematic risk can be defined as A) the total risk to the firm. B) the risk of the individual security. C) the risk of the market in general. D) the risk that can be systematically diversified away. Answer: C 8) Unsystematic risk can be defined as A) the total risk to the firm. B) the risk of the individual security. C) the added risk that a firm's shares bring to a diversified portfolio. D) the risk of the market in general. Answer: B 9) The study of how shareholders can motivate management to accept the prescriptions of the shareholder wealth maximization model is called A) market efficiency. B) the SWM model. C) agency theory. D) the SCM model. Answer: C 10) Under the Shareholder Wealth Maximization Model of corporate governance, poor firm performance is likely to be faced with all but which of the following? A) Sale of shares by disgruntled current shareholders. B) Shareholder activism to attempt a change in current management. C) As a maximum threat, initiation of a corporate takeover. D) Prison time for executive management. Answer: D 11) Which of the following is a reason why managers act to maximize shareholder wealth in Anglo-American markets? A) The use of stock options to align the goals of shareholders and managers. B) The market for corporate control that allows for outside takeover of the firm. C) Performance based compensation for executive management. D) all of the above Answer: D

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12) Which of the following is NOT true regarding the stakeholder capitalism model? A) Banks and other financial institutions are less important creditors than securities markets. B) Labor unions are more powerful than in the Anglo-American markets. C) Governments interfere more in the marketplace to protect important stakeholder groups. D) All of the above are TRUE. Answer: A 13) The stakeholder capitalism model A) typically avoids the flaw of impatient capital. B) tries to meet the desires of multiple stakeholders. C) may leave management without a clear signal about tradeoffs among the several stakeholders. D) all of the above Answer: D 14) Which of the following is generally NOT considered to be a viable operational goal for a firm? A) Maintaining a strong local currency. B) Maximization of after-tax income. C) Minimization of the firm's effective global tax burden. D) Correct positioning of the firm's income, cash flows and available funds as to country and currency. Answer: A 15) Which of the following operational goals for the international firm may be incompatible with the others? A) Maintaining a strong local currency. B) Maximization of after-tax income. C) Minimization of the firm's effective global tax burden. D) Each of these goals may be incompatible with one or more of the others. Answer: D 16) The primary operational goal for the firm is to A) maximize after-tax profits in each country where the firm is operating. B) minimize the total financial risk to the firm. C) maximize the consolidated after-tax profits of the firm. D) maximize the total risk to the firm. Answer: C 17) Which of the following broad topics is NOT identified as an area to be established as good corporate governance practice by the Organization for Economic Cooperation and Development (OECD)? A) Protect the rights of shareholders. B) Disclosure and transparency. C) The proper role of stakeholders in the governance of the firm. D) All of the above should be a concern of good corporate governance. Answer: D
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Answer: D 21) Generally speaking. the authors distinguish between internal and external factors. Congress in July 2002. B) reform corporate governance. board of directors C) Executive management. A) Smoot-Hawley B) Humphrey-Hawkins C) McCain-Merrill D) Sarbanes-Oxley Answer: D 23) The Sarbanes-Oxley Act. 2002. C) limit the Federal Reserve Board's ability to engage in the buying and selling of gold. was designed to A) reinstitute heavy tariffs on international trade. ________ is an example of an internal factor. C) State ownership of enterprise. which of the following is NOT considered an important factor in the composition and control of corporate boards of directors? A) The number of insider vs outside directors. Answer: D 22) Signed into law on July 30.18) The relationship among stakeholders used to determine and control the strategic direction and performance of an organization is termed ________. regulators Answer: C 20) Which of the following is NOT commonly associated with a government affiliated form of corporate governance regime? A) No minority influence. C) The composition of the compensation committee. B) Lack of transparency. the ________ Act requires CEOs of publicly traded companies to vouch for the veracity of the firm's published financial statements. executive management B) Debt markets. A) corporate governance B) Anglo-American activism C) capital structure D) working capital management Answer: A 19) When discussing the structure of corporate governance. Answer: B 4 . passed by the U.S. auditors D) Auditors. B) The total number of directors on the board. and ________ is an example of an external factor. D) All are associated with this type of corporate governance regime. D) All of the above are important factors of board composition. D) limit trade with countries deemed lenient on terrorism. A) Equity markets.

D) unknown because there is not enough information to answer this question. South Korea. B) League of Nations.8665/$. Answer: B 52) World War I caused the suspension of the gold standard for fixed international exchange rates because the war A) cost too much money. D) all of the above Answer: D 5 . A) United Nations. B) Differential rates of inflation across member nations. C) always changing because the price of gold was always changing. and Brazil. Answer: B 26) The post WWII international monetary agreement that was developed in 1944 is known as the ________. D) Bretton Woods Agreement. Answer: D 27) Another name for the International Bank for Reconstruction and Development is ________. C) aids countries with balance of payment and exchange rate problems. dollars and £4. B) interrupted the free movement of gold. an ounce of gold cost $20. Answer: D 29) Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods? A) Widely divergent national monetary and fiscal policies among member nations. A) the Recon Bank B) the European Monetary System C) the Marshall Plan D) the World Bank Answer: D 28) The International Monetary Fund (IMF) A) in recent years has provided large loans to Russia.S. C) lasted too long.67 in U. B) £0.2055/$.24) Under the gold standard of currency exchange that existed from 1879 to 1914. Therefore. C) Several unexpected economic shocks to member nations. C) Yalta Agreement. D) used gold as the main ingredient in armament plating. D) is all of the above.2474 in British pounds. the exchange rate of pounds per dollar under this fixed exchange regime was A) £4. B) was created as a result of the Bretton Woods Agreement.

crawling pegs. D) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses. countries would prefer a fixed exchange rate. independent floating B) crawling pegs. Answer: C 32) A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate. managed float C) currency board arrangements. other things equal. which of the following statements is NOT true? A) Fixed rates provide stability in international prices for the conduct of trade. and ________ as the least fixed. currency board arrangement. exchange arrangements with no separate legal tender. C) Independent floating. currency board arrangement. B) Independent floating. A) crawling peg B) pegged C) floating D) fixed Answer: C 34) Based on the premise that. exchange rates within crawling pegs Answer: A 31) Which of the following correctly identifies exchange rate regimes from less fixed to more fixed? A) Independent floating.30) The IMF's exchange rate regime classification identifies ________ as the most rigidly fixed. managed float. D) Exchange arrangements with no separate legal tender. currency board arrangement. A) exchange arrangements with no separate legal tender. crawling pegs. Answer: C 6 . crawling pegs. C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies. A) pegged exchange rate with the United States B) pegged exchange rate with the Euro C) independent floating D) managed float Answer: A 33) The United States currently uses a ________ exchange rate regime. independent floating D) pegged exchange rates within horizontal bands. B) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.

B) Full financial integration. and Central America. South. C) the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U. The country took this step because A) the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy. the Ecuadorian sucre.40/$. dollar. thus. and monetary independence.S. A) bi-currencyism.S. C) a Yankee bailout. D) all of the above Answer: C 38) In January 2002. If a country chooses to have a pure float exchange rate regime. C) Full financial integration and monetary independence. D) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime. B) sucrerization. full financial integration. In January 2002.00/$ to Peso1. This practice is known as ________. which two of the three goals is a country most able to achieve? A) Monetary independence and exchange rate stability.S. A) strengthened B) weakened C) remained neutral D) all of the above Answer: B 39) In January 2000 Ecuador officially replaced its national currency. B) Exchange rate stability and full financial integration.35) Which of the following is NOT an attribute of the "ideal" currency? A) Monetary independence. dollar. Answer: D 36) The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability. the Argentine Peso ________ against the U. Argentina abandoned the currency board and allowed its currency to float against other currencies. Answer: C 37) Beginning in 1991 Argentina conducted its monetary policy through a currency board. D) dollarization. B) the United States required the action as a prerequisite to finalizing a free trade zone with all of North. dollar. D) All are attributes of an ideal currency. with the U. C) Exchange rate stability. the Argentine Peso changed in value from Peso1. Answer: D 7 .

D) The central bank of the dollarized country loses the role of lender of last resort. B) An exchange rate pegged to the U. B) Price.40) You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U. C) Promote price stability within the European Union. dollar. what is the single most important mandate of the European Central Bank? A) Promote international trade for countries within the European Union. C) Consumers and business enjoy price transparency and increased price-based competition. Answer: A 44) According to the authors. C) Dollarization causes the country to lose the power of seignorage.0 or lower per person. financial and product markets. B) The fiscal deficit should be no more than 3% of GDP. A) profiteering B) dollarization C) seignorage D) inflation Answer: C 43) Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)? A) National birthrates must be at 2. B) Currency risks and costs related to exchange rate uncertainty are reduced.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. D) Establish an EMU trade surplus with the United States. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States? A) Dollarization. D) An internationally floating exchange rate. D) Government debt should be no more than 60% of GDP. Answer: A 41) Which of the following is NOT an argument against dollarization? A) Dollarization causes a loss of sovereignty over domestic monetary policy. B) Dollarization removes currency volatility against the dollar.S.S. in euros. Answer: C 45) Which of the following is a way in which the euro affects markets? A) Countries within the Euro zone enjoy cheaper transaction costs. C) Nominal inflation should be no more than 1. D) all of the above Answer: D 8 . C) An exchange rate with a fixed price per ounce of gold. Answer: B 42) The ability of a country to profit from its ability to print money is known as ________. all products for sale in the European Union.

S. C) Changes in a country's BOP may signal a change in controls over payment of dividends and interest.S. D) All of the above are rate regime trade-offs. 2001. Which of the following were NOT a contributing factor in the assent of the euro and the decline in the dollar? A) Severe U. dollar (USD). C) Dollars vs pounds. which is NOT a trade-off that must be dealt with in any exchange rate regime? A) Cooperation vs independence. A) surplus.46) For the three years from early 2002 to early 2005. Answer: B 49) The balance of payments as applied to a course in international finance may be defined as: A) the amount still owed by an exporting firm after making an initial down payment. contract B) surplus. B) Rules vs discretionary action. B) The BOP is an important indicator of a country's foreign exchange rate. B) the amount still owed by governments to the International Monetary Fund. the euro maintained a strong and steady rise in value against the U. Answer: C 48) Which of the following is NOT a major subaccount of the Balance of Payments? A) The financial account. D) The current account. especially in the short run. C) Large U. C) The capital account. Answer: C 47) Of the following. balance of payment surpluses. C) the measurement of all international economic transactions between the residents of a country and foreign residents. balance of payments deficits. expand C) deficit. D) the amount of a country's merchandise trade deficit or surplus. D) All of the above were contributing factors.S. D) all of the above Answer: D 51) A country experiencing a serious BOP ________ is more likely to ________ exports than otherwise. expand D) none of the above Answer: A 9 . B) A general weakening of the dollar after the attacks of September 11. B) The accounts payable. Answer: C 50) Balance of payment (BOP) data may be important for any of the following reasons: A) BOP data helps to forecast a country's market potential.

B) adds up the value of all assets and liabilities of a country on a specific date.A. B) Net import/export of services. Answer: D 53) Which of the following is NOT a part of the Current Account of BOP? A) Net export/import of goods. subsidiary of European financial giant.-based firm manages the development of an oil field in Kazakhstan. D) A U. D) Other Financial items. Answer: B 55) Which of the following is NOT an item to be considered in BOP calculations? A) Purchase of a U.S. C) The official reserves account. C) A U. B) The U.S. pays dividends to its parent in Zurich.S.S.S.S. C) Net portfolio investment. B) A U. D) All of the above are BOP accounts. distributor of automobiles manufactured in Japan by its parent company. Credit Suisse.52) Which of the following would NOT be considered a typical BOP transaction? A) Toyota U. Answer: C 54) Which of the following is NOT part of the Financial Account of the BOP? A) Net foreign direct investment. D) Net export/import of services. Answer: C 56) The balance of payments A) determines the eligibility of countries for IMF aid. B) The financial/capital account. is a U. C) records all international transactions for a country over a period of time. C) Net portfolio investment. D) all of the above Answer: C 57) Which of the following is NOT part of the balance of payments account? A) The current account. Canada and buys a case of LaBatt's Canadian beer. B) Balance of Trade. C) A consumer buys a VCR made in Korea from a Florida Wal-Mart store. Answer: D 10 . D) All are example of BOP transactions. tourist purchases gifts at a museum in London.S. citizen living in Minnesota travels to Winnipeg. Treasury Bill by a foreign resident.

B) an income balance deficit. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of ________. A) goods (merchandise) trade B) services trade C) income trade D) transfer accounts Answer: A 63) In 2007 the United States posted a current account deficit of -$731 billion. C) a goods trade deficit.58) The ________ includes all international economic transactions with income or payment flows occurring within the year. A) capital account B) current account C) financial account D) IMF account Answer: B 59) If your company were to import and export textiles. The bulk of the negative value came from A) a net transfer deficit. the transactions would be recorded in the current account subcategory of ________. created a subsidiary in Chile last year to mine copper ore. A) services trade B) income trade C) goods trade D) current transfers Answer: A 61) Anaconda Copper Inc. A) services trade B) income trade C) goods trade D) current transfers Answer: B 62) The subcategory that typically dominates the current account is ________. D) an income trade deficit. A) services trade B) income trade C) goods trade D) current transfers Answer: C 60) The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of ________. Answer: C 11 .

international goods trade B) international investment. direct investment Answer: D 68) In general there is consensus that ________ should be free but there is no such consensus that ________ should be free. A) current account B) merchandise trade account C) services account D) capital/financial account Answer: D 66) The financial account consists COMPLETELY of which three components? A) Stock investment. goods trade. A) international investment. and mutual fund investment. indirect investment C) portfolio investment. international trade C) international trade. Answer: C 65) The ________ of the balance of payments measures all international economic transactions of financial assets. Answer: B 12 . portfolio investment B) direct investment. portfolio investment. international investment Answer: D 69) The two major concerns about foreign direct investment are: A) national defense and taxes. A) direct investment. A) greater than B) equal to C) less than D) The relationship is constantly shifting from greater than to less than. portfolio investment. D) Mutual fund investment. international goods trade D) international trade. and stock investment. B) Direct investment. and bond investment. stock investment. indirect investment D) portfolio investment.S. B) who controls the assets and who receives the profits. and other asset investment. bond investment.S. C) who receives the profits and taxes. Answer: C 67) When categorizing investments for the financial account component of the balance of payments the ________ is an investment where the investor has no control whereas the ________ is an investment where the investor has control over the asset. D) who pays the taxes and who receives the taxes. services trade has typically been ________ the deficit on U. C) Direct investment.64) Over the last two decades the surplus on U.

devaluing. in practice there are substantial imbalances as a result of statistical errors and misreporting of current account and financial account flows. A) current transfers B) income payments and receipts C) goods (merchandise) imports and exports D) services imports and exports Answer: C 73) Which of the following statements about the balance of payments is NOT true? A) The BOP is the summary statement of all international transactions between one country and all other countries. B) The BOP is a flow statement. countries with a BOP ________ should consider ________ their currency while countries with a BOP ________ should consider ________ their currency. D) All of the above are true. deficit. the long term B) long term. surplus. revaluing. devaluing. devaluing C) surplus. Answer: D 13 . revaluing D) surplus. revaluing. devaluing Answer: D 72) The largest single component of the United States current account is ________. profit C) profit motivated. profit Answer: C 71) Under an international regime of fixed exchange rates. control D) control motivated. A) short term. summarizing all international transactions that occur across the geographic borders over a period of time. revaluing B) deficit. typically a year.70) Portfolio investment is capital invested in activities that are ________ rather than made for ________. deficit. A) deficit. surplus. C) Although the BOP must always balance in theory.

B) Exports become relatively less expensive.1914 B) 1914 .M + R Answer: C 75) Imports have the potential to lower a country's inflation rate because of each of the following EXCEPT: A) the import of lower priced goods limits what domestic competitors can charge for goods. C) the higher prices of foreign goods spurs domestic competitors to cut prices. which is NOT a part of J-Curve adjustment path? A) The currency contract period.2007 Answer: B 14 . C) The balance of trade gets worse.M D) GDP = C + I + X . D) of all of the above Answer: C 76) Of the following. Answer: C 78) The authors identify four distinct periods of capital mobility since 1860. Answer: D 77) Which of the following is NOT likely to occur in the quantity adjustment phase of the JCurve adjustment path ? A) Imports become relatively more expensive. B) The exchange rate pass-through period.1945 C) 1945 . Which do they term as a "period of global economic destruction"? A) 1860 . B) the import of lower priced services limits what domestic competitors can charge for services. C) The quantity adjustment period. D) All of the above are true.74) Use the following terms for this question: C = consumption I = capital investment spending G = government spending X = exports of goods and services M = imports of goods and services BOP = balance of payments GDP = gross domestic product NPV = net present value INF = inflation R = real rate of return The static equation for the nations GDP is: A) GDP = C + I + G + (X + M ) x INF B) GDP = C + I + G + X + M C) GDP = C + I + G + X .1971 D) 1971 . D) Each of the above is part of the J-Curve adjustment path.

Answer: D 15 . A) Eurodollar transaction B) import/export exchange C) foreign exchange transaction D) interbank market transaction Answer: C 82) While trading in foreign exchange takes place worldwide. D) All of the above are true. and London. A) Capital flight B) Capital mobility C) Irrational exuberance D) Money laundering Answer: D 80) Which of the following is NOT true regarding the market for foreign exchange? A) The market provides the physical and institutional structure through which the money of one country is exchanged for another. and Bahrain. Answer: D 81) A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency. B) Obtaining or providing credit for international trade transactions. C) Minimizing the risks of exchange rate changes. New York. B) New York. and Tokyo. Frankfurt. and London. D) All of the above were identified as functions of the foreign exchange market. New York. Zurich. C) Paris. D) Los Angeles.79) ________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership. Answer: A 83) Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market? A) The transfer of purchasing power between countries. B) The rate of exchange is determined in the market. C) Foreign exchange transactions are physically completed in the foreign exchange market. the major currency trading centers are located in A) London.

________ seek all of their profit from exchange rate changes while ________ seek to profit from simultaneous exchange rate differences in different markets. B) commercial and investment transactions. A) futures market B) federal open market C) foreign exchange market D) LIBOR Answer: C 85) The authors identify two tiers of foreign exchange markets: A) bank and nonbank foreign exchange. D) All of the above are characteristics of foreign exchange dealers. and minimize exposure to the risks of exchange rate changes. B) Central banks and treasuries. D) client and retail market. A) wholesalers. Answer: D 88) ________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction. Answer: B 87) Which of the following may be participants in the foreign exchange markets? A) Bank and nonbank foreign exchange dealers.84) The ________ is the mechanism by which participants transfer purchasing power between countries. C) Speculators and arbitragers. brokers Answer: C 16 . A) Speculators and arbitragers B) Foreign exchange brokers C) Central banks D) Treasuries Answer: A 90) In the foreign exchange market. Answer: C 86) It is characteristic of foreign exchange dealers to A) bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. B) act as market makers. arbitragers D) dealers. retailers B) central banks. willing to buy and sell the currencies in which they specialize. treasuries C) speculators. C) trade only with clients in the retail market and never operate in the wholesale market for foreign exchange. D) All of the above. obtain or provide credit for international trade transactions. C) interbank and client markets.

200 billion. dollar. treasuries B) dealers. and U. on the other hand.K. and Tokyo. A) $3. C) London. and Japanese yen. dollar. and Chinese yuan.91) Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. D) London. month C) $3.000 billion. Chinese yuan. and Zurich. arbitragers Answer: B 92) Daily trading volume in the foreign exchange market was about ________ per ________ in 2007. Chinese yuan. brokers C) brokers. A) spot B) forward C) futures D) none of the above Answer: A 17 . and U. euro.K pound. Singapore.K. Answer: C 96) A ________ transaction in the foreign exchange market requires an almost immediate delivery (typically within two days) of foreign exchange.K. London. Answer: A 95) The four currencies that constitute about 80% of all foreign exchange trading are A) U. D) U. pound. euro.000 billion.200 billion. and Zurich. euro. and Paris. dollar. Frankfurt. B) New York. C) U. dealers D) speculators. A) Spot transactions B) Swap transactions C) Strip transactions D) Futures transactions Answer: C 94) The greatest amount of foreign exchange trading takes place in the following three cities: A) New York. earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase. day Answer: C 93) ________ are NOT one of the three categories reported for foreign exchange. pound. month B) $1. day D) $1. U. B) U.S. pound.S. Tokyo. yen. A) central banks. Japanese yen.S. Foreign exchange ________.

D) selling dollars forward. It has the same characteristics and documentation requirements as traditional forward contracts except that they are only settled in U. A) "forward against spot" B) "forspot" C) "repurchase agreement" D) "spot against forward" Answer: D 100) The ________ is a derivative forward contract that was created in the 1990s.S. buying pounds forward. D) All of the above are true. dollars could be described either as ________ or ________. B) Pricing of NDFs reflects basic interest rate differentials plus an additional premium charged for dollar settlement. C) selling pounds forward. buying pounds forward. Answer: C 99) A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market. A) buying dollars forward. selling dollars forward. buying dollars forward. B) selling pounds forward.S. Answer: C 18 . dollars and the foreign currency involved in the transaction is not delivered. A) nondeliverable forward B) dollar only forward C) virtual forward D) internet forward Answer: A 101) Which of the following is NOT true regarding nondeliverable forward (NDF) contracts? A) NDFs are used primarily for emerging market currencies. C) NDFs can only be traded by central banks. A) spot B) forward C) swap D) currency Answer: B 98) A forward contract to deliver British pounds for U.97) A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.

indirect B) American terms.102) A foreign exchange ________ is the price of one currency expressed in terms of another currency. direct B) direct. European terms D) European terms. quote C) rate. quote D) rate.S. A) direct. A) quote. C) 100¥/€.55/€ D) $0. direct Answer: D 19 . American terms Answer: D 104) The following is an example of an American term foreign exchange quote: A) $20/£. Answer: A 105) American and British meanings differ for the word billion. B) €0.50/£ C) £0. dollar. A) Kiwi B) Loony C) Uncle Sam D) Yard Answer: D 106) From the viewpoint of a British investor. when traders refer to an American billion. they call it a/an ________. rate Answer: C 103) Most foreign exchange transactions are through the U. while a/an ________ quote would be in dollars per foreign currency unit. which of the following would be a direct quote in the foreign exchange market? A) SF2. D) None of the above.40/£ B) $1. A foreign exchange ________ is a willingness to buy or sell at the announced rate.90/€ Answer: C 107) A/an ________ quote in the United States would be foreign units per dollar. direct C) American terms. rate B) quote. indirect D) indirect.85/$. A) European terms. If the transaction is expressed as the foreign currency per dollar this known as _______whereas ________ are expressed as dollars per foreign unit. indirect C) indirect. Therefore.

investor would be ________ and the direct quote for the British investor would be ________.699/£. then the indirect quote for the U. A) £0. ask.43/£ Answer: A 109) ________ make money on currency exchanges by the difference between the ________ price.4484/£.4484/$.699/$.699/$.6906/$ C) $1.S. ask.74/$ D) ¥129. ask C) Brokers. A) £1.1. investor for British pounds is $1.108) If the direct quote for a U. or the price at which they offer to sell the currency.S. bid D) Brokers.4487/$. $0. £0.699/$ C) £1.699/$ D) £0. $0. The current spot rate of dollars per pound as quoted in a newspaper is ________ or ________.43/£. bid. £0.4481/£. A) -¥20 B) -¥18 C) ¥129.6903/£ Answer: C 111) Refer to Table 6. £0.6904/£ B) $1. £0.6904/$ D) £1.1. $1. The one-month forward bid price for dollars as denominated in Japanese yen is ________. or the price they offer to pay.699/$ B) $0. 110) Refer to Table 6. bid.1 Use the table to answer following question(s).62/$ Answer: D 20 . A) Dealers.43/£. and the ________ price. £0. ask Answer: B TABLE 6. bid B) Dealers.

The ask price for the two-year swap for a British pound is ________.24% Answer: A 116) Financial derivatives are powerful tools that can be used by management for purposes of A) speculation.06% C) premium.09% D) premium. Answer: D 21 .112) Refer to Table 6.30% C) appreciated. the 6-month yen is selling at a forward ________ of approximately ________ per annum.24% D) depreciated. Thus. D) A and B above. 2.1. A) appreciated. which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity? ¥129. According to the information provided in the table.69/€ B) ¥114.1226/$ €0. A) $1.30% B) depreciated.4250/£ B) $1.96/€ C) $0. C) human resource management.8908/€ D) $0. dollar suddenly changes in value against the euro moving from an exchange rate of $0.00864/¥ A) ¥115.09% B) discount. B) hedging.06% Answer: C 114) Given the following exchange rates. (Use the mid rates to make your calculations. 2.08709/€. 2.4257/£ C) -$230 D) -$238 Answer: B 113) Refer to Table 6. 2.8909/euro to $0. 2. 2. 2.S. the dollar has ________ by ________.) A) discount. 2.1.87/$ €1.0077/¥ Answer: B 115) The U.

B) marked market sum. short C) sold. long B) purchased. Answer: D 119) About ________ of all futures contracts are settled by physical delivery of foreign exchange between buyer and seller. This deposit is called a A) collateralized deposit. D) All of the above are specified. A) buy. A) sold. place. sell B) sell. C) Last trading day. Answer: C 121) A speculator in the futures market wishing to lock in a price at which they could ________ a foreign currency will ________ a futures contract. buy C) buy. A) 0% B) 5% C) 50% D) 95% Answer: B 120) Futures contracts require that the purchaser deposit an initial sum as collateral. B) Maturity date. short D) purchased. sold Answer: C 22 . D) settlement. A) futures B) forward C) option D) swap Answer: A 118) Which of the following is NOT a contract specification for currency futures trading on an organized exchange? A) Size of the contract. buy D) none of the above Answer: C 122) A speculator that has ________ a futures contract has taken a ________ position. C) margin. and price.117) A foreign currency ________ contract calls for the future delivery of a standard amount of foreign exchange at a fixed time.

50 gain Answer: A 125) Which of the following statements regarding currency futures contracts and forward contracts is NOT true? A) A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. D) Sell pounds in six months.44/£. C) Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. how much money did Jack gain or lose from his speculation with pound futures? A) $937.43/£ in six months. Answer: D 125) Which of the following is NOT a difference between a currency futures contract and a forward contract? A) The futures contract is marked to market daily whereas the forward contract is only due to be settled at maturity. pound will cost $1.K. C) A single sales commission covers both the purchase and sale of a futures contract whereas there is no specific sales commission with a forward contract because banks earn a profit through the bid-ask spread. B) A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like up to one year. If each pound futures contract is for an amount of £62. Answer: D 23 . B) The counterparty to the futures participant is unknown with the clearinghouse stepping into each transaction whereas the forward contract participants are in direct contact setting the forward specifications.500.4250 at which time he sold the pound futures.50 gain C) £937. C) Sell pounds today. A 6-month currency futures contract is available today at a rate of $1. Answer: A 124) Jack Hemmings bought a 3-month British pound futures contract for $1. D) All of the above are true.50 loss D) £937.50 loss B) $937. If Peter was to speculate in the currency futures market. which of the following strategies would earn him a profit? A) Sell a pound currency futures contract. and his expectations are correct. B) Buy a pound currency futures contract.4400/£ only to see the dollar appreciate to a value of $1. D) All of the above are true.123) Peter Simpson thinks that the U.

B) spot rate. buy C) put. release D) none of the above Answer: A 128) The price at which an option can be exercised is called the ________. D) commission. A) in-the-money B) at-the-money C) out-of-the-money D) under-the-spot Answer: A 24 . European B) American. A) premium. Answer: C 129) An ________ option can be exercised only on its expiration date. A) call. whereas an ________ option can be exercised anytime between the date of writing up to and including the exercise date. American D) European. American Answer: D 130) A call option whose exercise price exceeds the spot price is said to be ________. A) in-the-money B) at-the-money C) out-of-the-money D) over-the-spot Answer: C 140) A call option whose exercise price is less than the spot price is said to be ________. put. to buy a given amount of foreign exchange at a fixed price per unit for a specified period. sell B) call. A) American.126) A foreign currency ________ gives the purchaser the right. A) future B) forward C) option D) swap Answer: C 127) A foreign currency ________ option gives the holder the right to ________ a foreign currency whereas a foreign currency ________ option gives the holder the right to ________ an option. British C) Asian. not the obligation. buy. sell. hold. put. C) strike price. call.

C) client desired expiration dates. 2009. 62. and individuals and financial institutions typically use the ________. B) amounts that are tailor made.448/£ B) £1. A) exchange markets. A) in-the-money B) at-the-money C) out-of-the-money D) on-the-spot Answer: B 142) The main advantage(s) of over-the-counter foreign currency options over exchange traded options is (are) A) expiration dates tailored to the needs of the client.500 pound contracts).1. The exercise price of ________ giving the purchaser the right to sell 25 .448/$ C) $14. it is safe to say that businesses generally use the ________ for foreign currency option contracts. What was the closing price of the British pound on April 18. over-the-counter B) over-the-counter. 144) Refer to Table 8.48/£ D) None of the above Answer: A 145) Refer to Table 8. private Answer: B TABLE 8.1. government sponsored D) government sponsored.1 Use the below mentioned table to answer following question(s). 2009? A) $1.141) An option whose exercise price is equal to the spot rate is said to be ________. British Pound Option Prices (cents per pound. exchange markets C) private. D) all of the above Answer: D 143) As a general statement. April 19.

35/euro Answer: D 150) A call option on UK pounds has a strike price of $2.50. 1. B) $0.06 cents. C) $0.50. Answer: C 148) A put option on yen is written with a strike price of ¥105. He speculates that in the coming months the dollar will rise sharply vs.50. 1.20/euro B) $1.03/£ B) $2. B) 1440.pounds in June has a cost per pound of ________ for a total price of ________.02 cents.05/£ and a cost of $0. The May call option on pounds with a strike price of 1440 means ________. D) 1440. the pound. C) Buy a put on the pound. Which spot price maximizes your profit if you choose to exercise the option before maturity? A) $1.25/euro C) $1.68 cents. B) Sell a call on the pound. D) Sell a put on the pound. $887. D) none of the above Answer: C 147) Dash Brevenshure works for the currency trading unit of ING Bank in London.0088/£. Answer: B 26 . $425. A) 1460. What should Dash do to act on his speculation? A) Buy a call on the pound.30/euro. 0. C) 1450.42 cents. $662.05/£ D) The answer depends upon if this is a long or a short call option. $637.02.07/£ C) $2.1. 1. Answer: B 146) Refer to Table 8.00.30/euro D) $1. A) $88/£ per contract.88/£. Which spot price maximizes your profit if you choose to exercise the option before maturity? A) ¥100/$ B) ¥105/$ C) ¥110/$ D) ¥115/$ Answer: D 149) A call option on euros is written with a strike price of $1. What is the break-even price for the option? A) $2.00/$.

00/$ in the next six months.000 worth of yen at today's spot price and sells within the next six months at ¥128/$ she will earn a profit of ________.000 D) unlimited. Currently the spot price for the Japanese yen is ¥129.09 B) $101. Andrea thinks the yen will move to ¥128.00/$ in the next six months. unlimited C) $100.87/$ and the 6month forward rate is ¥128. Currently the spot price for the Japanese yen is ¥129. unlimited B) unlimited. at the forward rate B) buy dollars.53/$.94 C) $1460.000 worth of yen at today's spot price her potential gain is ________ and her potential loss is ________. Andrea should ________ at ________ to profit from changing currency values. Andrea thinks the yen will move to ¥128. A) $146. she will lose money Answer: C 154) Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. $100.000.S firm has an accounts payable denominated in UK pounds due in 6 months. Answer: C 152) Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Answer: A 153) Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market.151) Your U.460.87/$ and the 6month forward rate is ¥128.53/$. at the forward rate C) sell yen. To protect yourself against unexpected changes in the dollar/pound exchange rate you should A) buy a pound put option. A) $100. If Andrea buys $100. $100. C) buy a pound call option.00/$ in the next six months. at the forward rate D) There is not enough information to answer this question.000. If Andrea buys $100. B) sell a pound put option. A) buy yen. D) sell a pound call option. Currently the spot price for the Japanese yen is ¥129.000 Answer: D 155) Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign 27 . Andrea thinks the yen will move to ¥128.87/$ and the 6month forward rate is ¥128.53/$.94 D) nothing.

53/$. Currently the spot price for the Japanese yen is ¥129. B) has a gain equal to but opposite in sign to the writer of the option.53/$ B) buying yen for ¥128. the 28 . Answer: B 159) Which of the following is NOT true for the writer of a put option? A) The maximum loss is limited to the strike price of the underlying asset less the premium.00/$ C) There is not enough information to answer this question D) She could not profit in the forward market. B) has a gain equal to but opposite in sign to the writer of the option. A) buying yen for ¥128. the premium paid. C) The gain or loss is equal to but of the opposite sign of the buyer of a call option. B) The gain or loss is equal to but of the opposite sign of the buyer of a put option. then she could profit in the forward market by ________ and then ________. the value of the underlying asset. D) All of the above are true. Answer: A 157) The buyer of a long call option A) has a maximum loss equal to the premium paid. C) has maximum gain potential limited to the difference between the strike price and the premium paid. unlimited. C) has an unlimited maximum gain potential. selling yen at ¥128. A) unlimited. D) all of the above Answer: D 158) Which of the following is NOT true for the writer of a call option? A) The maximum loss is unlimited. D) All of the above are true. Andrea thinks the yen will move to ¥128. selling yen at ¥128. B) The maximum gain is unlimited. Answer: D 160) The buyer of a long put option A) has a maximum loss equal to the premium paid. C) unlimited. If Andrea's expectations are correct. C) The maximum gain is the amount of the premium.currency exchange market. unlimited.00/$. Answer: B 156) The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________.00/$ in the next six months. D) all of the above Answer: D 161) The value of a European style call option is the sum of two components.53/$.87/$ and the 6month forward rate is ¥128. B) the premium paid. D) unlimited.

minimum Answer: B 164) Assume that a call option has an exercise price of $1.A) present value plus the intrinsic value. Answer: D 163) The ________ of an option is the value if the option were to be exercised immediately. B) a time value of $0. C) The standard deviation of the daily spot price movement. minimum C) time value. D) any of the above Answer: D 166) ________ volatility are calculated by being backed out of the market option premium values traded. C) intrinsic value plus the time value. it may be determined from A) historic volatility. maximum D) time value. At a spot price of $1. Therefore. B) time value plus the present value. B) forward-looking volatility. Answer: C 162) Which of the following is NOT a factor in determining the premium price of a currency option? A) The present spot rate.04.00. A) Historic B) Forward-looking C) Implied D) none of the above Answer: C 167) The authors quote an essay on risk from Peter Bernstein in which he states each of the 29 . A) a time value of $0.00. Answer: C 165) Volatility cannot be directly observed for calculation purposes of the option pricing model. the call option has ________.04. D) an intrinsic value of -$0. D) All of the above are factors in determining the premium price.45/³. C) an intrinsic value of $0. A) intrinsic value. C) implied volatility.50/³. B) The time to maturity. It is the options ________ value. maximum B) intrinsic value. D) the intrinsic value plus the standard deviation.

Answer: B 30 . 20. C) The science of risk management is capable of creating new risks even as it brings old risks under control. or 50 years.following EXCEPT: A) It is hubris to believe that we can put reliable and stable numbers on the return of the stock market over the next 2. D) All of the above are part of Peter Bernstein's essay. B) It is rational to use probability instead of timing to demonstrate that an event with low probability is therefore unlikely to ever occur.

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